An important stage in the mergers and acquisition process is developing, planning and executing the stock or asset purchase agreement. The M&A transactions can be structured in various ways, but the it is important not to create a complex structure that cannot be understood by any of the parties. The goal when developing the acquisitions strategy is to create a simple and straightforward structure that reflects the goals and objectives of both Buyer and Seller.
Almost all structures, even the most complex, are at their roots either mergers or acquisitions, including the purchase or consolidation of either stock or assets. Today, most of the mergers and acquisitions of private companies are structured as a share acquisition rather than mergers or asset purchase. However, the most fundamental issue in the M&A deal structure whether the transaction is structured as an asset or stock purchase. There are advantages and disadvantages surrounding the stock or asset purchase and the facts and circumstances of each case should be considered before determining the ultimate form. Generally, most business Sellers prefer to sell their stock, yet most Buyers prefer to purchase the assets of a company rather than the stock.
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In an asset purchase transaction, the Buyer purchases the Seller company’s assets, which can include anything from equipment, bank accounts, contracts, permits and licenses, intellectual property, trademarks, patents to inventory and others. The documents that memorializes the asset purchase transaction is known as the asset purchase agreements. In other words, the asset purchase agreement is a written agreement between a Buyer and a Seller that finalizes the terms and conditions related to the sale and purchase of a Selling company’s assets.
The asset purchase agreement must identify the parties to the transaction, and the specific tangible and intangible assets sold. In addition, the agreement identifies the liabilities the Buyer agreed to assume and the manner in which the assets and liabilities are sold, the terms and conditions and the payment terms. Finally, the asset purchase agreements should also include among others the Seller’s assurances as to the status and performance of the assets being sold, the rights of each party in case of breach of contract, and the timetable for the closing of the transaction. Overall, the asset purchase agreement should be balanced to protect the interests of both parties.
The stock purchase transaction involves the purchase and sale of the shares of a Selling company by a Buyer and is memorialized in a stock purchase agreement. In other words, a stock purchase agreement is a written agreement between a Buyer and a Seller that provides the agreed terms and conditions related to the sale and purchase of a Selling company’s stock. The stock purchase agreements must include the name of the parties, the number of shares being sold, the purchase price, and the payment terms. Additionally, the agreement should include the timeline of the transaction, the representations and warranties made by the Buyer and Seller, and indemnification provisions. Finally, before the parties enter into a stock purchase agreement it is important to create a letter of intent explaining the proposed sale.
Contact us, your business attorney in Florida, to advise you on the optimal structure for the acquisition and execute the stock purchase agreement or asset purchase agreement.